ECONOMICS OF WIND ENERGY

© M. Ragheb
2/18/2017

INTRODUCTION
Wind energy capital costs have declined steadily. A typical cost for a typical
onshore wind farms has reached around $1,000/kW of installed rated capacity, and for
offshore wind farms about $ 1,600/kW. The corresponding electricity costs vary due to
wind speed variations, locations and different institutional frameworks in different
countries.
Wind power accounted for 5.6 percent of the USA electricity generating capacity
in 2012, up from about 3 percent in 2011. Developers installed 13.1 GWs of wind capacity
in 2012, surpassing natural gas power plant construction to become the largest new source
of electricity. The growth is driven by tax incentives, utility demand, falling costs and better
technology including taller towers and lighter blades.
The production tax credit incentive at 2.2 cents / kW.hr of energy production was
extended for a year at the start of 2013. The rate was increased to 2.3 cents in April 2013
as an adjustment to the official inflation rate.
At low fossil fuel prices, wind energy has not generally been cost competitive with
the thermal sources of electricity generation. The pattern of development of wind energy
is largely dependent on the subsidies and support mechanisms provided by national
governments.
However, wind energy prices are converging with those from the thermal sources,
which have been steadily increasing as the fossil fuel resources are getting depleted both
in individual nations and globally. It is not always simple to make objective comparisons,
as there are few places where totally level playing fields exist.

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Figure 1. Share of electrical energy production in the USA.

ECONOMIC CONSIDERATIONS
The big driver behind the growth in wind energy investment is the falling cost of
wind-produced electricity. Over the last 20 years, the cost of generating electricity from
utility-scale wind systems has dropped by more than 80 percent. When large-scale wind
farms were first set up in the early 1980s, wind power was costing as much as 30 cents per
kilowatt-hour (¢/kWhr) of the produced energy. Presently, new installations in the most
favorable locations can produce electricity for less than 5 ¢/kWhr.
Higher fossil fuels such as oil, coal and natural gas prices are helping to make wind
power more competitive. Even where wind power is still not able to compete head-on with
cheaper power sources in some locations, it is getting close. At a natural gas price of $5-
15 per million British Thermal Units (BTUs), wind energy becomes competitive even
without the USA’s Production Tax Credit (PTC) subsidy.
Continued investment will depend on whether energy prices of other sources will
stay high. Developers of wind power installations are looking at a 20 to 30 year investment
span. If natural gas prices fall over that period, a project that is now profitable could
become uncompetitive a few years into the future.

TRANSMISSION AND GRID ISSUES
Transmission costs are a major issue in wind energy development. Some of the
best locations for generating wind energy are far distant from the consuming industrial and
population centers. Some areas have a better, more reliable source of wind power than
others. Although half the USA’s installed wind power capacity is based in Texas and
California, the greatest potential for wind generation can be found in areas where there is
little demand for electrical power. For instance, there exists a significant amount of wind
potential in North Dakota, but there are just not a lot of people or industries in North Dakota
to consume the electrical power. The highest wind speeds exist in the remote and
inaccessible Aleutian Islands in Alaska and necessitate an energy storage and conveyance
medium such as hydrogen from water as a transportation fuel in fuel cells. A massive
upgrade of the transmission lines nationwide through the national electrical power grid
using High Voltage DC instead of High Voltage AC is needed to tap those distant sources.
Where water supplies are abundant, along seashores or internal lakes or rivers, the
electricity produced could be used for extracting hydrogen from water through the
electrolysis process. Hydrogen then can become the storage medium and energy carrier of
wind energy. It would be conveyed or transmitted to the energy consumption sites possibly
through the existing natural gas pipeline system which covers the USA.
Another alternative is to convert hydrogen with coal into methane gas, CH4 that
could be distributed through the existing natural gas distribution grid without significant
modifications. Methane itself can be converted into methanol or methyl alcohol, CH3OH
as a liquid transportation fuel.
In the long term, to reduce the electrical transmission losses, one can envision
superconducting electrical transmission lines cooled with cryogenic hydrogen carrying
simultaneously electricity and hydrogen from the wind energy production sites to the
consumption sites. Such a visionary futuristic power transmission system could also
provide the electrical power for a modern mass transit system using Magnetically-levitated

(Maglev) high speed trains transporting goods and people supplementing the current
highway system in the USA.

WIND ELECTRICITY COST AND PRICE
Data attributed to two USA sources: a Department of Energy projection for the
period 2000-2005 and an analysis for the state of Oregon in 2000 shows a gap between
wind and gas prices with wind larger than coal. Other USA data suggest that wind prices
can be brought down to around 4 ¢/kW.hr in some locations.

Figure 2. Electricity prices in ¢ / (kW.hr) in the USA over the period 2000-2005.

An important characteristic of wind energy production is that there is no such thing
as a point price for wind energy. A linear relationship does not mathematically exist. This
is so since the annual electricity production will vary largely depending on the amount of
wind available at a given wind turbine site. Thus a single price for wind energy does not
exist, but rather a price interval or range, depending on wind speeds.

the costs would become 7. and the annual turbine energy output taken from a power density curve using a Rayleigh wind distribution with a shape factor of 2. which increase with turbine use. an operation and maintenance cost of $6.Figure 3. .000 including installation. One would have to modify the graph if the Operation and Maintenance (O&P) costs. From the graph.hr of the produced energy. 5 percent/year real interest rate. rather than 5 percent per year. a capital investment of $585. are taken into account. Cost of electricity for a 600 kW wind turbine as a function of its power output. The data apply to a Danish built 0.5 percent higher than shown in Fig. 4.6 MW wind turbine with a projected lifetime of 20 years. Figure 3 shows how the cost of electricity produced by a typical wind turbine varies with its power output or its annual production of energy. If the real rate of interest is 6 percent per year. it can be inferred that as the energy produced per year is doubled.750 per year. we can half the cost per kW.

It can be noticed that at high wind speeds above 9 m/s. Operation and Maintenance (O&M) cost. However. than the nominal 10 meters height used for meteorological observations and wind speed reporting at different locations. 3. for roughness classes in the range 1-2. generation technologies. For instance. Fuel cost. It must be noted that wind speeds at 50 meters hub height will be 28-35 percent higher. studies of the cost of wind energy and other renewable energy sources could become flawed because of a lack of understanding of both the technology and the economics involved. Misleading comparisons of costs of different energy technologies are . Capital and Investment cost.5 m/s at a 50 meter hub height. Figure 4. 2. 4). the cost of electricity is about the same at the 10 or 50 meters heights (Fig. the cost of electricity is primarily affected by three main components: 1. and at the meteorological nominal 10 meters height (upper graph). WIND ENERGY COST ANALYSIS In general. Cost of electricity at a 50 meters hub height (lower graph). a wind speed of 5 m/s at 10 meter-height in the roughness class 1 will correspond to 6.

accounting for the intermittence factor IF. 7. Government incentives and tax credits. Economic depreciation of the capital equipment.common. 8. The cost of wind as fuel is zero. 5. Energy storage components. Taxes paid to local and federal authorities. the Production Tax Credit PTCt. The operation and maintenance costs. Even the realized profit cannot be considered as a cost. the tax levy Tt. and the royalties or land payments Rt: t  n 1 ( I t  O & M t  PTCt  Dt  Tt  Rt )  (1  i )t LCOEwind  t 0 t  n 1 (2) IF  Pt t 0 . Royalties paid to land owners. if used. considering the economical life of the plant and the costs incurred in the construction. and the fuel costs. resulting in a short construction period t in the range [-N. -1]. 3. 9. Along this line. It is misleading to think that the amount of funds needed to pay for the purchase a wind turbine is a cost or expenditure. 6. 4. the cost of electricity in wind power generation includes the following components: 1. Interest paid on the borrowed capital. 2. operation and maintenance. 1 for wind power generation. LEVELIZED COST OF ELECTRICITY. we can write for the generation cost over the construction and production periods:  t 1 I t    t  n 1 ( Ft  O & M t  Dt  Tt )    t      t  N (1  i )   construction  t 0 (1  i )t  production LCOE  (1)  t  n 1 Gt    (1  i )t   t 0  production The fuel cost Ft is zero in wind power generation. This results in the following form of Eqn. and the wind turbine is factory- assembled and directly delivered to the wind park site. Specifically. LCOE The Levelized Cost OF Electricity (LCOE) in electrical energy production can be defined as the present value of the price of the produced electrical energy in cents / kW. the depreciation credit Dt.hr. Payment for electricity used on a standby mode.

typically 20 years for wind generators. DISCOUNT RATE The discount rate (i) is chosen depending on the cost and the source of the available capital. It is advisable to consider the effect of inflation. LCOE = Generation Cost [cents/kW. NET PRESENT VALUE The net present value of a project is the value of all payments. the real rate of interest “r” defined as the sum of the discount rate i and the inflation rate s: Real rate of interest = Discount rate + Inflation Rate r i  s (4) .hr] Gt = Electrical energy generation in year t [kW. and consequently using the real interest rate instead. For its estimation. discounted back to the beginning of the investment.hr] It = Investment made in year t [$] O & M t = Operation and Maintenance in year t [$] PTCt = Production Tax Credit [$] Dt  Depreciation credit [$] T = Tax levy [$] t Rt  Royalties or land rents [$] where: Ft  Fuel cost [$]  0 IF = Intermittence factor Pt  Electrical generation capacity in year t [kW.hr]. considering a balance between equity and debt financing and an estimate of the financial risks entailed in the project. Gt  IF  Pt n = Duration of the generation period [years] i = Discount rate The Present Value Factor (PVF) is: 1 PVF  (3) (1  i )t The LCOE is estimated over the lifetime of the energy-generating technology.

decay or other such factors.hr is calculated by first estimating the sum of the total investment and the discounted value of operation and maintenance costs in all years.. P1 P2 Pn Net present value    . In simple terms. If the guess is too high. ELECTRICITY COST PER UNIT ENERGY The electricity cost per kW.  (5) (1  r ) (1  r ) 1 2 (1  r ) n REAL RATE OF RETURN The real rate of return is the real rate of interest “r” which makes the net present value of a project exactly zero. Those terms are added together to the initial investment to estimate the net present value. economics and finance to spread the cost of an asset over the span of several years. rust. The net present value is computed by taking the first yearly payment and dividing 2 3 it by (1+r). the net present value is negative. If the guess is too low. the third payment by (1+r) . The computation of the real rate of return requires an iterative procedure to find the roots of the expression for the present value. If the income from the investment is not known. The Newton-Raphson iteration method can make the iterative approach converge rapidly. it becomes positive. thus one cannot calculate economic depreciation. We cannot calculate the economic depreciation of an investment unless we know the income from the investment. the rate of return is not determined. the project has a lower rate of return. it can be said that depreciation is the reduction in the value of an asset or good due to usage. DEPRECIATION COST Depreciation is a term used in accounting. If the net present value is positive. technological outdating or obsolescence. the project has a real rate of return which is larger than the real rate of interest “r”. where n is the project lifetime. The tax depreciation or accounting depreciation is sometimes confused with .. passage of time. and n the n-th payment by (1+r) . If the net present value is negative. The result is discounted for all future electricity production: each year's electricity production n is divided into (1+r) . Depreciation is defined as the decline in the capital value of the investment using the internal rate of return as the discounting factor. depletion.is used to evaluate future income and expenditures. inadequacy. rot. The next payment is then divided by (1+r) . The real rate of return is a measure of the real interest rate earned on a given investment. wear and tear. One approach is to make a guess that is substituted into the equation. The income from electricity sales is subtracted from all non-zero amounts of payments at each year of the project period.

5 percent per year over a 20 years lifetime of $585. or its economic life. 600000 500000 400000 300000 200000 100000 0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 Figure 5.5 14625 570375 Year 2 2. It may be zero or even negative. However.hr is sought. Accordingly: Original cost-Real value $ Annual dedpreciation expense = . tax or accounting depreciation is a set of mechanical rules which must not be used when the true cost of energy per kW.economic depreciation.000 turbine is shown in Fig.[ ] Life span year (6) A linear depreciation of 2.5 14625 541125 . Linear depreciation schedule over a 20 years useful lifetime. Table 1. STRAIGHT LINE DEPRECIATION Straight line depreciation is the simplest and most often used method in which we can estimate the real value of the asset at the end of the period during which it will be used to generate revenues. 5. It will expense a portion of the original cost in equal increments over the period. Linear [percent of [$/year] Residual depreciation total value[$] cost/year] Year 1 2.5 14625 555750 Year 3 2.5 percent per year over a 20 years period for a wind turbine. Straight line depreciation at 2. The real value is an estimate of the value of the asset or good at the time it will be sold or disposed of.

as well as the taxes paid.5 14625 292500 PRICE AND COST CONCEPTS The words: “cost” and “price” are sometimes mistakenly used as synonyms. Some people assume that the price of a product is somehow a result of adding a normal or reasonable profit to a cost.5 14625 336375 Year 18 2.5 14625 438750 Year 11 2.Government incentives and tax credits + f(scarcity) A factor that is a function of the scarcity of wind resources at a given location.5 14625 394875 Year 14 2.5 14625 380250 Year 15 2.5 14625 482625 Year 8 2.5 14625 497250 Year 7 2. different tower heights. it is erroneous to divide the turnover in dollars by the volume or sales or MW to obtain the price of a turbine in $/MW: Turnover $ Price  [ ] (8) Volume MW .5 14625 351000 Year 17 2.5 14625 321750 Year 19 2. Year 4 2. To determine the prices of wind turbines.5 14625 468000 Year 9 2.5 14625 511875 Year 6 2.5 14625 307125 Year 20 2. must be accounted for. which is not necessarily the case.5 14625 424125 Year 12 2. WIND TURBINES PRICES Wind turbine prices may vary due to transportation costs. The price of a product is determined by supply and demand for the product. unless it is applied to a government controlled monopoly. different generators sizes and the grid connection costs.5 14625 409500 Year 13 2. Thus in general: Price = Cost + Profit + Taxes + Installation + Fuel + Operation and maintenance (7) .5 14625 453375 Year 10 2.5 14625 526500 Year 5 2. different rotor diameters.5 14625 365625 Year 16 2.

The price per square meter of rotor swept area located at a given hub height is what matters. The patterns of sales. In Germany it is profitable to equip wind turbines with very tall towers. Cost = f(price of electricity) (9) Price of electricity  Cost The annual production per m2 of rotor swept area in a location like Denmark tends to be significantly higher than in another location such as Germany. In Wales. Sales may vary significantly between markets for high wind turbines and low wind turbines. whereas it is profitable to use low wind areas in Germany due to the higher electricity prices. rotor blades. However these are machines optimized for the German low wind sites. In Denmark it is not profitable to locate wind turbines in low wind areas. UK. The high electricity price also makes it profitable to locate wind turbines in low wind areas. foundations. and types of contracts vary significantly from year to year and depend on the different locations and markets. switchgear and other installation costs including road building and power lines. The safest approach is to obtain the prices from the price lists and to consider the price in units of $/m2 of rotor swept area. Germany has a very high electricity price for renewable sources of electricity in terms of the tariff per kW.hr of energy delivered to the grid. PRODUCTIVITY AND COSTS A unique aspect of wind energy production is that its productivity and costs depend on the price of electricity. and not vice versa as in other energy systems. This has no relationship to the different wind resources. not the price per kW of installed power. turbine nacelles. It must be realized that some of the manufacturers’ deliveries are complete turnkey projects including planning. types of turbines. The manufacturer sales figures also include service and sales of spare parts. The manufacturers' sales include licensing income. towers. Wind turbines sold in the German market appear more expensive than they do in other markets. the most economic turbines will have larger rotor diameters relative to the generator size than in other areas of the world. The prices of different types of turbines are quite different. transformers. if one considers the price per kW of installed or rated power. It is instead related to the different prices for electricity at the different locations. INSTALLATION COSTS Another unique feature of wind energy is that a high cost of generating electricity is not necessarily a result of high installation cost. In that case. One incurs a high installation cost whenever a good wind resource is available and hence cheap generating costs are available in a remote area. the installation costs tend to be high in the range of several hundred . but the corresponding rated power in MWs are not registered in the company accounts.

and the cost of wind energy in the UK is low. it may still be worthwhile to produce oil from Texas: what will matter in this case is not the average cost per barrel of oil but the marginal variable cost of extracting an extra barrel of oil. The costs are different since it is more complex to extract oil from Texas than in Kuwait. . affecting whether a wind farm is located next to an existing medium voltage power line or far from a power line. What really matters is the price per square meter of rotor swept area. since the electricity price per kW. WIND ENERGY AS A RESOURCE EXTRACTION TECHNOLOGY There does not exist an average cost of wind energy like there is no average cost of oil. due to the hill acceleration effect. road construction and grid connection amounting to about 30 percent of the turbine cost. Average installation costs cannot be used. High installation costs can be afforded. LOCATION EFFECT One cannot use the statistics from a specific area to estimate the costs in another area. because high wind sites are scarce. Installation costs may vary with the location. OPERATION AND MAINTENANCE The operation and maintenance cost can be estimated as either a fixed amount per year or a percentage of the cost of the turbine. The cost of wind energy in Germany is high. PRICE PER SQUARE METER OF ROTOR SWEPT AREA The price per kW of rated power is not a good guide to investment in wind energy project.per cent higher than in Denmark. The costs of electrical cabling can be significant. The installation costs include the costs for extension of the electrical grid and the grid reinforcement. despite the very low electricity price. and sites which are profitable may not be found. We cannot average the cost of oil production in Kuwait and in Texas in order to find some average oil cost. It is profitable to build an expensive access road through the moors.hr delivered to the grid depends upon the distance to the grid. Few wind turbines will be installed if the price of electricity is low. because prices for electricity are high. This is analogous to farming where the price per acre of farmland is the relevant capital expenditure in addition to the price of the machinery and farm structures. This could also include a service contract with the wind turbine manufacturer. and build expensive foundations in order to use the high potential wind areas. Even if the market price of oil drops below 100 $/barrel. but in Texas. because the price of electricity is low. This is because there exists a substantial wind potential if the wind turbines are placed on top of the rounded Welch hills. it may be $60/barrel. In Kuwait the average cost may be $5/barrel. typically when a good wind resource exists since the power produced by a wind turbine is proportional to the cube of the wind speed.

It is difficult to give a single figure for the price per kW of installed power. and the second one a universal wind turbine.33/1. The generator size can thus be varied more freely relative to the .33/1.452 = 0. However.2 percent higher than the first machine.2 percent larger than the first turbine.33/1. Table 2. EXAMPLE The annual energy production from two wind turbines from the same manufacturer. Comparison of energy production a high wind machine to that of a universal machine.1 = 1.452 Relative price of machine 1 1.452 Hub height 50 m 50 m Relative energy production 1 1. simply because the price of a turbine varies much more with its rotor diameter than with the rated power of its generator.60 MW 0.452 = 0. The first one is a high wind turbine.4 percent. If we assume that the price for the second turbine is 33 percent higher than for the first machine.916 = 0.66 MW Relative rated power 1 660/600 = 1.21 Relative price per m2 of rotor area 1 1. the price per unit rotor area and the price per kWhr of energy produced both decrease by 1 – 0. both mounted on a 50 meters high tower can be compared. the price per kW rated power increases by 21 percent.hr of energy 1 1. The annual energy production from the second turbine with the larger rotor swept area is 45.1 Rotor diameter 39 m 47 m Relative rotor area 1 47/39 = 1.916 Relative price per kW. The reason is that the annual production depends much more on the rotor diameter than the generator size. and a very poor guide to cost developments. The price of a wind turbine per kW installed power is usually difficult to get hold of. High-wind Universal wind turbine turbine Model Vestas V39 Vestas V47 Nominal rated power 0.916 produced The rotor area of the second turbine is 45. Modern wind turbines are increasingly being equipped with a pitch control system replacing stall control. if wind power is considered. The comparisons of average price per kW of installed power for different energy technologies are usually misleading.33 Relative price per kW of installed capacity 1 1. despite the fact that the generator is only 10 percent larger.084 or 8.

Capacity factors will be very different for different turbines. the excess is in fact an income transfer. the availability of the wind and the grid access nearby. it is only a minor share of the compensation which is a cost of the loss of crop on the area that can no longer be farmed. In fact. LAND RENTS.hr of energy produced.rotor size. since the turbine operator can afford to pay it due to the profitability of the site. but likewise the prices or costs of these turbines will be very different. A rent payment does not transfer real resources from one use to another. if the generator were running at its rated electrical power all year. If the compensation exceeds what is paid to install a power line pylon. Overall. land rents or royalties paid to land owners where the turbines are placed is sometimes treated as a cost of wind energy. not the capacity or intermittence factor. This is a different matter economically: it is not a cost to society. what counts is the cost per kW. If the site has low . a possible nuisance compensation since the farmer has to make extra turns when plowing the fields underneath the wind turbines and he must be compensated for compaction and the damage to tiling from the heavy equipment access to the turbine site. There exists a tendency to use larger rotor areas for a given generator size.hr of energy produced. It depends on the quality of the site. The relevant price measure is the price per unit rotor swept area. but a transfer of income or profits from the wind turbine operator to the land owner. Royalties = f(Profitability) (11) The compensation. There is no standard compensation for placing a wind turbine on agricultural land. Such a profit transfer is called a land rent by economists. An apparent paradox is that it is not desirable to increase the capacity factor for a wind turbine. because that capacity factor minimizes the cost per kW. as it would be for technologies where the fuel is not free. INTERMITTENCE FACTOR The Intermittence Factor (IF) or Capacity Factor for an energy generating technology is equal to the ratio of the annual energy production to the theoretical maximum energy production. This means that an overestimated development price is obtained when comparing the price per kW of installed power for old turbines to those of new turbines. the ideal capacity factor for a wind turbine is in the range of 25-40 percent. Annual energy production Intermittence Factor IF  (10) Rated maximum energy production Depending on the wind statistics for a particular site. ROYALTIES AND PROJECT PROFITABILITY In wind energy production the land rents or royalties should depend on the profitability of a project and not vice versa. not the price per kW of installed or rated power. A land owner can bargain for a high compensation in a good location.

5 percent of turbine price = 0. We consider that the capital is in the form of available invested funds: if the capital cost is all borrowed funds.000 = 6. Total expenditure = Total turbine cost + Operation and maintenance cost over expected lifetime = $585. are used to calculate the net present value and the real rate of return over a 20 years project lifetime since this is the main economic aspect of the analysis. Offshore foundations for oil installations are designed to last 50 years. provided that corrosion from salty conditions can be controlled. Investment Expected lifetime = 20 years Turbine rated power: 600 kW Turbine cost: $450. Operation and Maintenance: 1.30 = $135.000 = $585. then the interest payment on the loan or the bonds must be accounted for.000 Total turbine cost = Turbine cost + Installation cost = $450. from 25-30 years. and high installation costs. such as the Production Tax Credit. A benchmark problem is first presented to later accommodate sensitivity studies of the effects of other factors. With the low turbulence of offshore wind conditions leading to lower vibrations and fatigue stresses.000 Installation costs: 30 percent of turbine price = $450. and it may be possible to consider two generations of turbines to be built on the same foundations.speed wind. The tax payments and credits and the depreciation credits are not considered for simplification but could be added for a more detailed analysis later.000 x 0. the compensation will be estimated closer to the nuisance value of the turbine.000 + $6. it is likely that the turbines can last longer.750 $/year.000 + $135. with an overhaul repair at the midlife point after 25 years. PROJECT LIFETIMES The figure used for the design lifetime of a typical wind turbine is 20 years. depreciation and taxes.000 Payments The payments. including the initial payment.750 / year x 20 year .015 x 450. BENCHMARK WIND TURBINE PRESENT VALUE COST ANALYSIS An attempt is made at the estimation of a present value cost analysis for the cost of electricity over a 20 years turbine project duration.

000 68.000 / yr.000 68.5568 38.777 18 -6.000 68.000 kWhr / year.6 MW rated power wind turbine.000 68.750 75.4810 32.250 0.05 $ 0 -585.000 68.750 75.750 75.000 kWhr / yr at $0.250 0.194 14 -6.000 68.500.5847 39.957 4 -6.250 0.000 68.9524 65.723 .750 75.000 68.750 75.000 68.000 2 -6. .250 0.250 0.250 0.6446 43.8227 56.250 /yr.250 0.250 0.250 0. Table 3. Energy produced in a year: 600 x 365 x 24 x 0.750 75.6768 46. = $585. Net income stream per year: $75.750 = $68.250 0.750 75.250 0.750 75.750 75.194 9 -6.899 11 -6.471 15 -6. One can construct Table 3 over the 20 years useful lifetime of the turbine.000 = $720.000 – $6.6139 41.929 7 -6.500.000 . Benchmark present value calculation for a 0.7462 50.5051 34.000 + $135.05 / kW.004 13 -6.000 68.000 68.5303 36.000 68.009 20 -6.149 5 -6.250 0.904 12 -6.266 17 -6.000 68.250 0.000 x 0.750 75.250 0.9070 61.829 16 -6.000 68.750 75.05/kWhr = 1.2854.000 68. .750 75.000 68.54 percent = 0.903 3 -6.05 = $75.750 75.7107 48.750 75.500.000 68.000 Current income and expenditures per year Capacity factor: 28.8638 58.4363 29.4581 31.750 75.750 75.995 10 -6.250 0.475 6 -6.3957 27.000 68.3769 25.504 8 -6.359 19 -6.750 75.250 0.250 0. - 1 -6.250 0.750 75.750 75.7835 53.750 75.2854 = 1.000 68. Price of electricity =$0.000 68.4155 28. Net Present Gross Net present value Year Expenditures Income Income value of factor n $ Stream Stream income 1/(1+r)n $ $ stream r = 0.250 0.hr Gross yearly income from electricity sale: 1.250 0.

Strong growth in USA wind installations is consequently projected for as long as that tax incentive is available. RENEWABLE ENERGY PRODUCTION INCENTIVE (REPI) The renewable energy Production Tax Credit (PTC). through the American Recovery and Reinvestment Act. the PTC has undergone a series of short-term extensions. In a measure taken by the USA Congress. 2007.500.84 cents / kWhr INCENTIVES. it was extended as part of the Tax Relief and Health Care Act of 2006 (H.072695 = 7. The ITC then qualifies to be converted to a grant from the Department of Treasury. and also for facilities placed in service before 2013 if construction begins before the end of 2010. INVESTMENT TAX CREDIT.3 cents per kilowatt-hour. 6408).000 1. ITC.5.531. In February 2009.5 Net present value of income stream at r = 5 percent/yr real rate of interest: $850. a credit of 2. The Production Tax Credit (PTC) provides a 2.3 cent per kilowatt.000) / 20 years = 0. Net present value of income stream 1 Yearly net real rate of return = .000 1.531. Wind project developers can choose to receive a 30 percent investment tax credit (ITC) in place of the PTC for facilities placed in service in 2009 and 2010. The PTC was set to expire on December 31. and has been allowed to lapse in three different years: 1999. is the primary federal incentive for wind energy and has been essential to the industry’s growth.hr = Yearly energy production . 850. Net present value of income stream Present value of electricity per kW. The incentive is called the .R. An incentive similar to the PTC is made available to public utilities.531. 2001 and 2003. SUBSIDIES.269 percent/year.000 .hour (kWhr) benefit for the first ten years of a renewable energy facility's operation. PRODUCTION TAX CREDIT. which do not pay taxes and therefore cannot benefit from a tax credit.531. Project lifetime $850.5 / $585. a federal policy for promoting the development of renewable energy was initiated. Congress acted to provide a three-year extension of the PTC through December 31.365.02835105 / kWhr = 2.5 = kWhr 1. 2012.500. Since its establishment in 1992. This policy is designed to help the wind energy industry continue to finance projects during these challenging economic times. but due to the efforts of a coalition of clean energy supporters. The Treasury Department must pay the grant within 60 days of an application being submitted. Total -720. Total turbine cost Project lifetime = ($850. PTC.000 x 20 years year = $0.

5 cent/kWhr tax credit was valued at 1. Unfortunately. and “closed-loop” bioenergy facilities. This marks just the second time that the PTC was extended by Congress before it had been allowed to expire. Combined with a growing number of states that have adopted renewable electricity standards. the PTC. The legislation extending the PTC provided a 1 year extension through December 31.5 cent/kWhr credit. such as “open- loop” biomass. solar. 6). 2004 of the PTC was included in a larger package of ‘high priority’ tax incentives for businesses signed by President George Bush. Originally enacted as part of the Energy Policy Act of 1992. a 1 year extension retroactive back to January 1. Congress allowed the PTC to expire for the third time at the end of 2003. The PTC expired at the end of 2001. geothermal. the PTC has been a major driver of wind power development over the last years. Losing the PTC would strangle the vendor base. According to the Union of Concerned Scientists (UCS). 2009. This would wreak havoc with the energy investment cycle and all but shut many projects down. 2001.R. A second bill extending the PTC through 2005 and expanding the list of eligible renewable energy technologies was enacted just a few weeks later. In early October 2004. small irrigation systems. incremental hydropower. From late 2003 through most of 2004 attempts to extend and expand the PTC were held hostage to the fossil fuel dominated comprehensive energy bill that ultimately failed to pass during the 108th Congress. adjusted for inflation. In August 2005. The PTC was set to expire at the end of 2005. This is negative toward the economics and the future investment of renewable energy systems.Renewable Energy Production Incentive (REPI) and it consists of a direct payment to a public utility installing a wind plant that is equal to the PTC at 1. Other technologies. The cycle begins with the wind industry experiencing strong growth in development around the country during the years leading up to the PTC’s expiration. 1999. It is sometimes difficult to obtain full funding for REPI because of competing federal spending priorities. From 1999 until 2004. the “on-again/off-again” status that has historically been associated with the PTC contributes to a boom-bust cycle of development that plagues the wind industry. money must be "appropriated" or voted for it annually by the USA Congress.9 cents/kWhr. for wind. In December of 1999 the credit was extended until December 31. The $700 billion financial institutions bailout package bill passed by the USA Congress in September 2008 extended it another year to December 31. and its extension was one of the main features for renewable energy in this energy bill. the PTC had expired on three separate occasions. landfill gas. adjusted for inflation.5 cents per kilowatt-hour. and it was not until March 2002 that the credit was extended for another two years. was first allowed to sunset on June 30. 2008 of a 1. the 1. disrupt the work force and curtail future output. Since the REPI involves the actual spending of federal funds. Lapses in the PTC then cause . receive a lesser value tax credit. The American Wind Energy Association estimated that the investment in renewable systems could fall by as much as 50 percent without the PTC in place. a 2 year extension of the PTC was included in a large package of tax incentives in the Energy Policy Act of 2005 (H. then targeted to support just wind and certain bioenergy resources. Any renewable energy system that is not installed and running by that time would not benefit from the PTC. and municipal solid waste (MSW).

AWEA. The last lapse in the PTC at the end of 2003 came on the heels of a strong year in USA wind energy capacity growth.687 megawatts (MW) of installed capacity. With the PTC reinstated. The planning and permitting process for new wind facilities can take up to two years or longer to complete. the wind power industry takes time to regain its footing. 2005 marked the best year ever for USA wind energy development with 2. And so on. A 93 percent. With the PTC firmly in place. but it is insufficient for sustaining the long-term growth of renewable energy. MW 8000 7000 6000 5000 4000 3000 2000 1000 0 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 Year Figure 6. the wind power industry added 1. Extending the PTC beyond 2008 to 2012 allowed the wind industry to continue building on previous years’ momentum. As a result.454 MW. a 5 year low.a dramatic slowdown in the implementation of planned wind projects. many renewable energy developers that depend on the PTC to improve a facility's cost effectiveness may hesitate to start a new project due to the uncertainty that the credit will still be available to them . Wind power capacity grew by 2. Installed capacity. 2006 was another near record year in the USA wind industry. a 43 percent increase over the previous record year established in 2001. Effect of the Production Tax Credit (PTC) on the installed wind power capacity in the USA. When the PTC is restored. 2002 and 2004 respectively upon temporary expiration then restarting of PTC. a 36 percent annual increase.431 MW of capacity installed. and then experiences strong growth until the tax credits expire. USA wind development decreased dramatically to less than 400 MW. In 2003. With no PTC in place for most of 2004. a 27 percent increase. 73 percent and 77 percent drops occurred in 2000. Source: American Wind Energy Association.

2015. More than $6 billion from the program. are well-represented. Pet-related businesses. Places like DogBoy's Dog Ranch. Similarly. to take a cash grant in lieu of the usual 30 percent investment tax credit.160 applicants. Officially touted by the administration as a mega-job creator. a 24 percent ITC.when the project is completed. the barrier of entry to the market must have been lowered. passed on December 18. 302 of the bill). a 12 percent ITC. clean renewable energy. or Pet Tender's Country Boarding Cattery. The program allows developers of renewable energy facilities. which got a $23. included a five-year extension and phase-down of the PTC. pet groomers. and the one most in need of cash injections. More than $7.948 grant for solar panels. have begun phasing down by 20 percent each year beginning in 2017. has gone to 133 large wind farms. a dog-boarding facility in Austin. Included on the list are hundreds of unexpected recipients. the Section 1603 program got new life with a one-year extension into 2011. it was viewed privately as a great way to funnel liquidity into a renewables industry suffering in the fall of 2008. in 2018. projects that started construction in 2015 and 2016 are eligible for a full 30 percent ITC. renewable energy might make some degree of sense. 301 of the bill). which received nearly $5. including wind farms. Section 1603 lowered it for all of these places by at least 30 percent. While most of the funds available under Section 1603 went to large wind installations the list of recipients shows that the program had a much broader and deeper reach than some big cash handouts to the wind industry. wind projects that started construction in 2015 and 2016 receive a full value PTC of 2. and in 2019. For some of these places. For the PTC (Sec. extended through 2019.000 of them. an 18 percent ITC. for the ITC election for wind energy (Sec. 77 percent.000 for a solar-thermal setup. A variety of other pet-boarding places. Texas. There are pastry shops. a cat-boarding place in rural Missouri. as well as the option to elect the investment tax credit for wind energy. for 2017. Fortune 500 companies and municipalities seek more low-cost. but none are businesses that stake their primary mission on renewables. The last extension of the PTC and ITC occurred in the FY16 Omnibus Appropriations Bill. SECTION 1603 STIMULUS BILL GRANT PROGRAM A prolific stimulus program has been the Section 1603 grant program. for 2018. with a final price tag of $3 billion. The PTC and ITC have driven more wind development– especially as utilities. alpaca farms and sundry other animal businesses are on the list as well. that have collected millions in grants. including Walmart and Kohl's. $5 billion more than originally intended. The vast majority of projects. The tax credits. more than 3.3 cents per kilowatt. was the wind industry. And there have even been a number of big retailers. for instance. to 3.8 billion were spent. 60 percent PTC. For projects that begin construction in 2017. 40 percent PTC. the credit is at 80 percent of full value. For them to enter the renewables game. The primary beneficiary. doctor's offices and quilting shops. Originally intended to be over by the end of 2010. went to small businesses.hour. and in 2019. .

and new patterns are continuing to develop.000 + $135. PTC. By the time the Section 1603 program officially gives its last dollar. Gross yearly income from electricity sale: 1. PTC We modify the calculational scheme for the benchmark. A report prepared by the State of Illinois alleged that the USA was eager to grant $8 million at developers for every wind job reported. It is not hard to imagine that the final tally for this program might be north of $10 billion.000 Total turbine cost = Turbine cost + Installation cost = $450. In the month of June 0f 2011.000 = $720.000 = $585.000 kWhr / yr at $0.000 x 0.000 + $6.05/kWhr = 1.500. steel fabricators.54 percent = 0.5 million was given to 254 recipients. $482. a pace in line with the previous five months.000 . heating oil companies and chemical plants. Pockets of activity where experienced workers and supply chains are hardening into a permanent fixtures exist. Pennsylvania. Within 50 miles of York.2854. including several Bloom Energy fuel cells. Energy produced in a year: 600 x 365 x 24 x 0. on the present value of the produced electrical energy. to study the effect of the Production Tax Credit. these companies will have had years of experience and business. probably sometime in late 2012.000 kWhr / year.000 + $135.500.2854 = 1. Of the 16 fuel cell projects on the list. The common thread among many of these recipients is that they have one or two relatively new companies that cater specifically to the financing and installation of small renewable systems.000 Operation and Maintenance: 1. EXAMPLE WIND TURBINE PRESENT VALUE COST ANALYSIS ACCOUNTING FOR THE PRODUCTION TAX CREDIT. Section 1603 continued to give money. there are dozens of recipients such as bologna manufacturers.000 Current income and expenditures per year Capacity factor: 28. Even more important for the future of renewables is that as these grants have burrowed deep down into the market they have dragged a long tail of supporting infrastructure with them.5 percent of turbine price = 0.015 x 450. eight have received their money this year.000 = 6.30 = $135.750 $/year. Payments Installation costs: 30 percent of turbine price = $450.500.750 / year x 20 year = $585. Total expenditure = Total turbine cost + Operation and maintenance cost over expected lifetime = $585.

3846 or 38.750 0.000 22.000 / 585.015 = $22.750 0.000 22.750 75.8638 78.271 The Production Tax Credit (PTC) pays fully 225.750 75.004 13 -6.000 22. Net Present Gross Production Net present value Year Expenditures Income Tax Credit Income value of factor n $ Stream (PTC) Stream income 1/(1+r)n $ $ $ stream r = 0.5847 39.310 3 -6.750 75. 68. .500 / yr (Over first ten years of project).750 75.718 7 -6.500 90.500.500 90.05 = $75. Benchmark present value calculation for a 0.750 0.9524 86.750 75. 68.750 75. 1.250 0.904 12 -6.711 11 -6.000 .750 0. 68.103 6 -6.750 0.250 0.250 0.250 0. 68.750 0.3769 25.750 75.750 75.000 .723 Total -720. 68.250 0.250 0. .750 0.000 .024. Net income stream per year (first ten years): $75.6446 58.5568 38.000 22. 68.000 22.590.777 18 -6.266 17 -6.250 0.5 cent/kWhr = 1.750 + 22.500.4581 31.390 4 -6.500 90.750 75.000 – $6.750 75.500 = $90.009 20 -6.7835 71.000 – $6.194 14 -6.500 90.000 .000 1.000 1.4810 32.750 75.750 75.250 /yr.000 22.250 0.000 22.496 8 -6.000 x 0.750 75.829 16 -6. PTC incentive.000 . 68.660 5 -6.000 .000 22. 68.471 15 -6.000 22. .500 90.750 75.x 0.05 $ 0 -585.000 .420 9 -6.000 .7462 67. .9070 82.3957 27.000 .250 0.750 0.750 0.750 75.359 19 -6.430 2 -6.000 = 0. Table 4.4363 29. 68.7107 64.750 75. 68.000 / yr.46 percent of the initial cost of the turbine.500 90.500 90.500 90. Net income stream per year (next ten years): $75.750 = $68.6 MW rated power wind turbine.5051 34.000 225.6139 55.000 .500 90.5303 36.500 90.000 .497 10 -6.750 0.750 75.750 75. - 1 -6.4155 28.000 .8227 74.250 0. accounting for the Production Tax Credit.750 75.750 /yr.000 22.6768 61. Yearly income from Production Tax Credit (PTC) of 1.750 75.

41 cents / kWhr Compared with the benchmark calculation.28 However. Project lifetime $1.750) = $17.024. we can compute the net tax payment (net tax) as: Net tax = tax payment –depreciation credit = 17.84 = 0.93 = $101.hr = Yearly energy production .003.12-6.438. if we consider the effect of depreciation. the Production Tax credit can be inferred to contribute a present value of: 3.438. = .063.024.500. Tax payment per year = 0.024. PTC. to the income stream from the produced electricity.84 .087545 = 8.184.063.000 x 20 years year = $0.28 + 22.12 – 6750 -2.162.815.271 / $585.28 Then. Net present value of income stream 1 Yearly net real rate of return. Net present value of income stream Present value of electricity per kW.Net present value of income stream at r = 5 percent/yr real rate of interest: $1.75percent/year. the net income stream for the first 10 years is: Net income = Gross income – expenditure – net tax +PTC Net income = 75. AS WELL AS DEPRECIATION AND TAXES The owner of a wind power farm has to pay taxes for the incomes he is obtaining from the electricity sales.28 – 14.25 x (75.776 Net present value of income stream at r = 5 % / year real rate of interest: $1.003.271 = kWhr 1.625 = $2.03414 / kWhr = 3. ACCOUNTING FOR THE PRODUCTION TAX CREDIT.000) / 20 years = 0. Total turbine cost Project lifetime = ($1.41 – 2.271.57 cents / kWhr.500. Assuming a 25 percent tax rate.

584679289 46373.84 0.28 14625 22500.28 101815.40571 2 -6750 75003. .28 79314.28 14625 22500.28 79314.47073 13 -6750 75003.505067953 40059.376889483 29892.28 14625 22500.6 MW rated power wind turbine.hr = Yearly energy production .91020 3 -6750 75003. accounting for the Production Tax Credit.29543 4 -6750 75003.28 101815.28 14625 22500. .415520655 32956.12 17063. 1162184.93percent/year.12 17063.28 79314.28 14625 0 2438.676839362 68912.28 79314.952380952 96967.28 14625 22500.84 1   3.57548 20 -6750 75003.12 17063. = . 000 20 Table 5. .12 17063.12 17063.863837599 87952.84 0.936 2438.4 341265.776 0.28 14625 0 2438.184.776 0. PTC incentive as well as depreciation and tax payments.395733957 31387.28 14625 22500.12 17063.28 14625 22500.776 0.84 0.776 0.12 17063.746215397 75976.458111522 36335.84 0. - 1 -6750 75003.783526166 79775.49967 7 -6750 75003.09089 5 -6750 75003.000) / 20 years = 0.776 0.16 .12 17063.776 0.12 17063.04207 17 -6750 75003.162184.28 14625 22500.776 0.28 79314.644608916 65631.28 79314.28 14625 0 2438.28 101815.84 0.92903 TOTAL -720000 1500062.84 0.907029478 92349. Benchmark present value calculation for a 0.28 14625 22500.84 0.936 2438.12 17063.936 2438.28 101815.84 0.530321351 42062.12 17063.05431 11 -6750 75003.28 101815. Project lifetime 1.12 17063.936 2438. The present value of the electricity will vary according to the values of the different .28 79314.776 0.5 percent credit PTC (Tax-Dep) factor of income electricity per year sale 0 -585000 .6 1811306.28 14625 22500.12 17063.84 / $585. .436296688 34604.936 2438.35702 10 -6750 75003.12 17063.613913254 62506.28 14625 0 2438.12 17063.936 2438.28 101815.28 101815.12 17063.71068133 72358.6 292500 225009.556837418 44165.32466 6 -6750 75003.28 14625 0 2438.481017098 38151.936 2438.12 17063.12 17063.28 14625 0 2438.87 cents/kWhr = 585.84 0.28 14625 0 2438.822702475 83764.57112 8 -6750 75003.79417 16 -6750 75003.28 101815.36 48765. .92487 9 -6750 75003. .483 SENSITIVITY ANALYSIS OF TAX RATE The methodology described above can be implemented into an Excel spreadsheet. Net present value of income stream 1 Yearly net real rate of return.12 17063.35308 14 -6750 75003. Net present value of income stream Present value of electricity per kW.28 101815.099332 = 9.28 79314.936 2438.28 101815.28 79314.936 2438.28 79314.95426 19 -6750 75003.28 14625 0 2438.936 2438.28 14625 0 2438.74427 12 -6750 75003.38388 15 -6750 75003.28 14625 0 2438.776 0. Gross Linear income Tax 25% Depreciation Production Tax Net Taxes Present value Net present value Year Expenditure from Net income Gross-Exp 2.84 0.776 0. Total turbine cost Project lifetime = ($1.12 17063.80197 18 -6750 75003.162.

6. Wind Project Construction stage Capacity factor 600 [kW] B3 Investment cost 750 [$/kW] B4 Expected lifetime 20 [years] B5 Installation cost 30 [% of the investment cost] B6 O&M cost 1. 7.4 [kWh/year] B18=+B3*8760*B14/100 Gross yearly income 75003.hr.2] cents/kW.933 C24=+C23*100 [c$/kWh] Present value of electricity 3.0993 C23=+(O24/B9)/B5 [%] Yearly net real rate of return 9. 50] percent. 3. whereas the gray cells indicate computational steps containing the mathematical formulae used in the economic evaluation.5 [c$/kWh] B16 Yearly income from PTC 22500. Excel Spreadsheet for present value calculation. Table 6. Such an estimation showing a variation in the tax rate is shown in Fig. the present value of the produced electricity varies over the range of [4.5 [% of Investment cost / year]B7 Discount rate 5 [%/year] B8 Total turbine cost 585000 [$] B9=+(B4*B3)+((B6/100)*B4*B3) O&M cost 6750 [$/year] B10=+(B7/100)*B4*B3 Total expenditure 720000 [$] B11=+B9+B10*B5 Operation stage Capacity factor 28. Green cells indicate modifiable input data.87379 C25=100*O24/(B18*B5) Tax 25 [%] . For a tax rate over the interval [0.54 [%] B14 Price of energy 0.05 [$/kWh] B15 Production Tax Credit 1.12 [$/year] B20=+B19-B10 Economics [1] Yearly net real rate of return 0. parameters.12 [$/year] B19=+B18*B15 Net yearly income 68253.936 [$/year] B17=+B16*B18/100 Energy produced 1500062.

16 OFFSHORE WIND FARMS ECONOMICS In 1997 the Danish electrical power companies and the Danish Energy agency finalized a plan for large scale investment in offshore wind energy in Danish waters.29 15 4.01 25 3. Effect of tax rate on present value of electricity.73 35 3.3 50 3.15 20 4.5 4 3.44 45 3.100 MW of wind power are to be installed offshore before the year 2030. The plan implies that some 4. Present value of Tax percentage electricity % [cents/kWhr] 0 4.58 5 4.5 3 2. Wind would by then supply some 50 per cent of Danish electricity consumption out of a total of 31 TWhr/year. Table 7. The most important consideration why offshore wind energy is becoming more . Sensitivity analysis of the present value of the income in cents/ kWhr depending on the tax rate percentage.5 2 0 10 20 30 40 50 Figure 7. 5 4.59 40 3.44 10 4.87 30 3.

One would think that turbines at sea would suffer corrosion from sea water leading to a shorter lifetime.7 million / MW. the average cost of electricity at 5 percent real discount rate and a 20 years project lifetime is about 5 cents/kWhr including an operation and maintenance cost of 1 cent/kWhr. required to install 1 MW of wind power offshore in Denmark is around 12 million Danish Korona (DKK). Dependence of the cost of electricity on the project lifetime. towers. That should cost some extra 25 percent over the initial . PROJECT LIFETIME Figure 8. However winds at sea have a lower turbulence than winds onshore leading to lower vibrations and resulting in a longer lifetime for turbines at sea. and main shafts in the turbines. They require a 50 year design lifetime for the foundations. or $1. Assuming an extended project lifetime of 25 years instead of 20. equivalent to 4 million German Marks (DEM). this leads to costs that are 9 per cent lower. nacelle shells. Danish power companies have been optimizing their wind projects with a project lifetime of 50 years. Since there is substantially more wind at sea than on land. The estimated total investment. If the turbines have a lifetime of 50 years. including the grid connections.economical is that the cost of building the foundations has significantly decreased. they will require an overhaul or refurbishment after 25 years.

Connection to the grid to sell the excess power produced is then needed when the wind blows favorably.4 Turbines installation 300 3. hydraulic systems 200 2. FISHING INDUSTRY ANALOGY Wind power production has unique characteristics that are different than other energy production systems. and hubs from other countries. in that to catch the fish that is available for free from the oceans. Operational costs are needed to maintain the turbine in a standby mode ready to catch the wind when it starts blowing. generators. MANPOWER REQUIREMENTS As of 1995.283 dkk/kWhr.investment. the wind industry employed some 30. This includes both direct and indirect employment.9 Rotor blades manufacture 2. human labor is needed to operate the boat.000 23. Jobs are created when wind turbines are installed in other countries. markets are needed to sell the fish catch.600 41.500 17. to harvest the wind that is available for free from the air.3 Structural towers 1. and those involved in their installation.5 Other activities 300 3. Component Number of persons Percent Turbine assembly 3. Manpower allocation to different activities in the wind industry. extracting power from the grid at a low level of 2-5 kW to operate its control and ventilation equipment.000 people worldwide according to a study from the Danish Wind Industry Association. since Danish manufacturers import many components such as gearboxes.3 Electronic controls 700 8. This leads to a cost a cost of electricity of 0. Human labor is needed for control and maintain the turbine components. Similarly.600 100 Wind turbine production is thought to create about 50 per cent more jobs globally. capital expenditures are needed to purchase the wind turbine and the associated power conditioning and transmission equipment. and then most important.5 Total 8.1 Brakes. It bears up a close analogy to the fishing industry. Indirect employment includes the manpower involved in the manufacturing of the components for wind turbines. capital expenditures are needed to purchase a boat and the fishing nets. operational costs are needed to maintain the boat and its equipment in a running condition. which is similar to the one for average onshore locations in Denmark. A unique characteristic of wind power production is that the cost incurred and the . Table 8.

Such a hurdle must be overcome for a sustainable and meaningful implementation of wind power production in the USA. if there is a power credit at the end of the year (if I produce more power than I use). the capacity factor of the installed capacity is about 0. If the investment per kW of installed capacity is on average $2.400 = $0. and a lower price than the electricity purchased from the grid. The system is so successful that Denmark has been exporting its surplus wind electricity to the European Union. and an intermittence factor of 0. This discourages the production and export of excess wind electricity.250 / 6. We consider a small wind turbine with a nominal power of 2. or natural gas is in general 20 years.400 kWhr / year. the credit is forfeited! Why bother?” DISCUSSION Wind and other renewable sources of energy are creeping towards competitiveness and weaning out from subsidies.250 / kW. like Denmark have grasped this reality and have encouraged the individual and cooperatives ownership of wind turbines. Lastly. into the grid system. I would not be permitted to install the equipment myself (although I am an industrial electrician with more than 20 years of experience). These plants operate 8. and generating on average 2. Any credits for excess power production are forfeited by the utility at the end of the year. and other renewables. an investment per kWhr per year of 2. under the antiquated protected utilities monopoly system in the USA. the concept of net-metering allows individuals to only get credit of their excess wind electricity production up to the amount of electricity that they purchase from the grid. The depreciation period for conventional power plants. Consider the disadvantages and the unsolvable dilemma facing a potential solar power producer [1]: “Last year I looked into installing a photovoltaic system on my house here in southern California.20 or 20 percent.73 or 73 percent. and I would have to pay an approved contractor for the system installation. compared with traditional electricity generated from conventional fossil and nuclear power plants.8 or about 6.394. Plus I would have to use a special meter.35 /kwhr.5 x 365 x 24 x 0. denying potential producers the benefit of being able to market their excess power production.20 . In contrast.5 kW.000 hours per year at an average load of 80 percent. and amounts to an amateurish catch and release of the excess captured power. Each kW of installed capacity generates 365 x 24 x 0. and provided them with a market for the product electricity by passing laws requiring the utility grid to purchase from them the product electricity.associated price that can be charged for the produced electricity are not constant and decrease as the total amount of wind electricity is increased. coal. Countries that have a history in the fishing industry. Then I found out that I would have to sell any excess power back to Southern California Edison for less than Southern California Edison sells it to me.73 = 6. much like the ownership fishing boats by individuals and small businesses. whether it is oil.

A small wind turbine energy production does not need power lines to be delivered to the customer if they are already there in his backyard. It will always be argued that the fuel for a small wind turbine is free.1¢/kWh for wind. The implication is that the financial burden of a small turbine per kWhr is 0. The investment per kW of installed capacity is about $1. INVESTMENT TAX CREDIT. wage hikes.380 kWhr / year. Its operational costs are minimal. 1.63.571 / 0. Industrial Sectors: Amount: 2. If one shares the view that the stock of fossil energy is finite and depletable. No administrative or overhead costs are incurred. Eligible System Marine and Hydrokinetic: Minimum capacity of 150 kW Size: Agricultural Livestock Waste: Minimum capacity of 150 kW .1¢/kWh for other eligible technologies. Wave Energy.752 = $0.35 = 1. Generally applies to first 10 years of operation.752 kWhr/year. This makes a compelling case for wind energy. These could reach the 10 percent that conventional electricity looses during transport and distribution.571 / kWhr. ITC Incentive Type: Corporate Tax Credit State: Federal Eligible Landfill Gas. Renewable/Other Municipal Solid Waste. and environmental requirements will affect the costs of conventionally generated electricity. Technologies: Anaerobic Digestion. On average.5 = 1. geothermal. What helps is the zero cost of the wind as fuel. Hydrokinetic Power (i. but not wind energy’s. Small Hydroelectric. APPENDICES RENEWABLE ELECTRICITY PRODUCTION TAX CREDIT (PTC).= 4. nor personnel to run it. Biomass. closed-loop biomass.830 /2.000 / 1.. It must be admitted that the electricity from wind turbines is currently more expensive than traditional generation such as from coal or natural gas. and that the first signs of shortage are already appearing on the horizon. Hydroelectric. an investment of 1. However the future scarcity would bring cost increases as rising fuel costs. Flowing Water). Ocean Thermal Applicable Commercial. No costs for the use of electricity networks and no grid losses are incurred. there is not much maintenance required. the sale price of traditionally generated kWhrs is about 10 times the depreciation costs. Wind. then one is compelled to recognize the threat of international vicious competition for the control of the remaining supplies of fossil fuels.e. The lower capacity or intermittence factor is balanced out by the lower capital cost. Tidal Energy. each kW delivers 4. the costs comparison between a small wind turbine kWhrs and conventionally generated electricity start converging toward each other. or 63 percent of those of a conventional power plant. If these factors are taken into account.000. Geothermal Electric.

2008. Department of Treasury. Marine and hydrokinetic energy production is eligible as of the date the legislation was enacted (October 3. most recently by H. B. Treasury Department instead of taking the PTC for new installations. The February 2009 legislation revised the credit by: (1) extending the in-service deadline for most eligible technologies by three years (two years for marine and hydrokinetic resources).Web Site: http://www.R. and made changes to the definitions of several qualifying resources and facilities.pdf Authority 1: 26 USC § 45 Date Enacted: 1992 (subsequently amended The American Recovery and Reinvestment Act of 2009 (H. The ITC or grant for PTC-eligible technologies is generally equal to 30% of eligible costs. Treasury Department instead of taking the business ITC for new installations.in-service deadline and credit amount -. as is the incremental energy production associated with expansions of biomass facilities. The new law also allows taxpayers eligible for the business ITC to receive a grant from the U. in February 2009. 1) allows taxpayers eligible for the federal renewable electricity production tax credit (PTC) to take the federal business energy investment tax credit (ITC) or to receive a grant from the U.gov/pub/irs-pdf/f8835. B.S.irs. the PTC has been renewed and expanded numerous times. 101 & 102) in October 2008 and again by H. 1424 (Div. and the inflation-adjusted credit amounts are current for the 2009 calendar year.as they apply to different facilities. The table includes changes made by H. and half of that amount for others. The Treasury Department issued Notice 2009-52 in June 2009. such as wave.S. expanded the list of qualifying resources to include marine and hydrokinetic resources. current and ocean thermal.R. 1 (Div.S.5¢/kWh in 1993 dollars (indexed for inflation) for some technologies. 1. Section 1101 & 1102) in February 2009. The federal renewable electricity production tax credit (PTC) is a per-kilowatt-hour tax credit for electricity generated by qualified energy resources and sold by the taxpayer to an unrelated person during the taxable year." took effect December 31. Sec. The tax credit amount is 1. The table below outlines two of the most important characteristics of the tax credit -. tidal. The rules governing the PTC vary by resource and facility type. Originally enacted in 1992. The effective dates of these changes vary. giving limited guidance on how to take the federal business energy investment tax credit instead of the federal renewable electricity production tax credit. The October 2008 legislation extended the in-service deadlines for all qualifying renewable technologies. A change in the definition of "trash facility" no longer requires that such facilities burn trash. and (2) allowing facilities that qualify for the PTC to opt instead to take the federal business energy investment credit (ITC) or an equivalent cash grant from the U. The Treasury Department will issue more extensive guidance at a later time. One further provision redefining the term "non-hydroelectric dam.) Resource Type In-Service Credit . (See the history section below for information on prior rules.R. and is also effective immediately.R. 2008).

1¢/kWh larger)** 2013 The duration of the credit is generally 10 years after the date the facility is placed in service. 4520). In December 2006. closed-loop biomass. Landfill Gas 1. 2008 -. the PTC expired at the end of 2001. Open-loop biomass. or subsidized energy financing. 1308. The PTC then expired at the end of 2003 and was not renewed until October 2004. expanded the PTC to include additional eligible resources -. open-loop biomass. small irrigation power. 2005.by the Tax Relief and Health Care Act of 2006 (H. The credit is claimed by completing Form 8835. Municipal Solid Waste 1. Wind 2. 2004. landfill gas and municipal solid waste combustion facilities placed into service after October 22.1¢/kWh 2013 December 31. 2004." As originally enacted by the Energy Policy Act of 1992. 2007. Open-loop biomass facilities placed in service before October 22. solar energy. which extended the credit through December 31. "General Business Credit. 3090). are only eligible for the credit for a five-year period. and was subsequently extended in March 2002 as part of the Job Creation and Worker Assistance Act of 2002 (H.1¢/kWh 2013 December 31. but there are two exceptions: 1. 6111).R. the tax credit is reduced for projects that receive other federal tax credits.R. landfill gas and municipal solid waste combustion -. tax-exempt financing.geothermal energy.1¢/kWh 2013 December 31. The Energy Policy Act of 2005 (H.in addition to the formerly eligible wind energy." and Form 3800. Open-Loop Biomass 1. on August 8. In addition. the Working Families Tax Relief Act of 2004. and poultry-waste energy resources. are eligible for a five-year period beginning January 1. and before enactment of the Energy Policy Act of 2005.through December 31. 2005. as part of H.1¢/kWh 2013 December 31. 6) modified the credit and extended it through December 31.1¢/kWh 2013 Marine and Hydrokinetic (150 kW or December 31.1¢/kWh 2012 December 31. The Energy Policy Act of 2005 (EPAct 2005) further expanded the credit to certain . "Renewable Electricity Production Credit.R.1¢/kWh 2013 December 31. 2005. Geothermal Energy 2. Deadline Amount December 31.R. The American Jobs Creation Act of 2004 (H. grants. 2. Qualified Hydroelectric 1. the PTC was extended for yet another year -. Closed-Loop Biomass 2. geothermal. small irrigation hydro.R. 1.

However. Technologies: Wave Energy. As a result of EPAct 2005. H. 2008.1¢/kWh (subject to availability of annual appropriations in each federal fiscal year of operation) Terms: 10 years Web Site: http://apps1. Wind. geothermal facilities were already eligible for a 10% tax credit under the energy ITC (26 USC § 48). Rural Electric Cooperative.R.R. The window for the 30% tax credit runs through 2013. Solar facilities placed in- service during the roughly one-year window in which solar was eligible are permitted to take the full credit (i. while the 10% tax credit under the section 48 ITC does not have an expiration date. Native Corporations Amount: 2. to take a 30% tax credit (or grant) in lieu of the PTC. Tidal Energy. including geothermal electric facilities. 1424 added marine and hydrokinetic energy as eligible resources and removed "small irrigation power" as an eligible resource effective October 3. from the end of 2008 until the end of 2011 (since extended again through 2013).hydropower facilities. the federal Renewable Energy Production Incentive (REPI) provides incentive payments for electricity generated and sold by new qualifying renewable energy facilities. . solar facilities placed into service after December 31. Thus H. Anaerobic Digestion. Prior to H.e.1¢/kWh) for five years. Landfill Gas. 2. the new legislation permits all PTC-eligible technologies. Sectors: Municipal Utility. However. Qualifying systems are eligible for annual incentive payments of 1. 1424 effectively extended the in-service deadline for small irrigation power facilities by 3 years. 2005. RENEWABLE ENERGY PRODUCTION INCENTIVE (REPI) Incentive Type: Production Incentive State: Federal Eligible Solar Thermal Electric. which is available only to businesses that pay federal corporate taxes.R. subject to the availability of annual appropriations in each federal fiscal year of operation. Renewable/Other Biomass. 1.eere. Photovoltaics. Recent guidance from the IRS regarding the Treasury grants in lieu of tax credits indicates that geothermal facilities that qualify for the PTC are eligible for either the 30% investment tax credit or the 10% tax credit. the definition of marine and hydrokinetic energy encompasses the resources that would have formerly been defined as small irrigation power facilities. Ocean Thermal Applicable Local Government. are no longer eligible for this incentive.gov/repi Authority 1: 42 USC § 13317 Date Enacted: 10/24/1992 (subsequently amended) Authority 2: 10 CFR 451 Established by the federal Energy Policy Act of 1992. State Government. the in-service deadline for the PTC.. REPI was designed to complement the federal renewable energy production tax credit (PTC).energy. Geothermal Electric. but not both. Tribal Government.5¢ per kilowatt-hour in 1993 dollars (indexed for inflation) for the first 10-year period of their operation.

landfill gas. . “Plugging into the Sun. geothermal or closed-loop biomass technologies. REFERENCES 1. the District of Columbia. ocean. wind. livestock methane.” National Geographic. Funds will be awarded on a pro rata basis. Qualifying systems must generate electricity using solar. 60% of the appropriated funds for the fiscal year will be assigned to facilities that use solar. Letters. territories and possessions of the United States. Payments may be made only for electricity generated from an eligible facility first used before October 1. If there are insufficient appropriations to make full payments for electricity production from all qualified systems for a federal fiscal year. current and thermal). if necessary. and 40% of the appropriated funds for the fiscal year will be assigned to other eligible projects. Kenneth Johnson. 2016. biomass (excluding municipal solid waste). Eligible electric production facilities include not-for-profit electrical cooperatives. or ocean resources (including tidal. wind. wave. and Native Corporations. 8. January 2010. geothermal (with certain restrictions). p. commonwealths. The production payment applies only to the electricity sold to another entity. state governments and political subdivisions thereof. Indian tribal governments or political subdivisions thereof. Appropriations have been authorized for fiscal years 2006 through fiscal year 2026. public utilities.